Wall Street bets on change in Brazil, but the gradual kind

RIO DE JANEIRO, April 22 (Reuters) - Brazil's financial
markets have soared over the past month on hopes that the
government may run smaller deficits, stop interfering as much in
the private sector and perhaps even undertake long-needed
reforms to revive the economy.

But some of the most experienced Brazil-watchers on Wall
Street are saying: Not so fast, guys.

While the business climate is likely to improve somewhat in
the next few years, hopes for a truly dramatic changes such as
an overhaul of the public pension system are probably overdone,
they say.

The markets' optimism has centered around an October
presidential election in which left-leaning President Dilma
Rousseff, who seeks a second term, has been losing popularity
among voters.

Rousseff has been unpopular with financial markets because
of her heavy hand in the economy. She has alternately cut and
raised taxes in various sectors and held down fuel prices at
state-run oil company Petroleo Brasileiro SA, among
other moves.

Rousseff's two main presidential election rivals are more
market-friendly so an opposition win would be welcomed by
investors.

Even if Rousseff wins, as she is still expected to do, many
investors believe she has been chastened by her falling approval
ratings and economic growth averaging just 2 percent a year
during her first term, and that could lead her to be less
activist in a second term.

A new-look Rousseff would please financial markets if she is
"very decisive in the first three months of her new
administration to tackle the (macroeconomic) problem," said
Paulo Vieira da Cunha, head of research at ICE Canyon, a fund
manager with $4 billion in assets.
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